The India Fintech Foundation (IFF) on Thursday submitted a policy recommendation note to the Finance Ministry and the Reserve Bank of India (RBI) to address the concentration risk in the Unified Payments Interface (UPI) ecosystem. In its note, the fintech body highlighted the dominance of two Third-Party Application Providers (TPAPs), which control over 80% of UPI transactions.
India Fintech Foundation (IFF), the proposed self-regulatory organisation (SRO) for the fintech industry, was launched at the Startup Mahakumbh in April.
IFF alleged that the duopoly of the two leading TPAPs has led to predatory pricing practices, entry barriers for new players, and stifled innovation, particularly affecting smaller and indigenous competitors. It further claimed that the current market dynamics have eroded the market share of state-led platforms like BHIM, which struggle to compete against the capital and user engagement advantages of the dominant players.
The IFF acknowledges the proactive measures already suggested by the RBI and the National Payments Corporation of India (NPCI), such as the proposed 30% volume cap on TPAPs. However, the delayed implementation could introduce friction in the customer journey and create trust issues among new users. “The ongoing, delayed attempts by the NPCI to enforce a 30 per cent transaction volume market cap highlight the seriousness of the issue and the operational challenges of regulating the concentration risk. The push of the large players to become too big before NPCI can enforce this cap is a strategic move to capture large market share and become ‘too big to fail’,” it said.
IFF has also urged reforming the UPI incentive mechanism. The current system, under the “Incentive Scheme for Promotion of Rupay Debit Cards & Low Value BHIM-UPI transactions,” inadvertently benefits the dominant TPAPs due to the distribution of incentives based on transaction volume, the self-regulatory body claimed. It proposed that the government, RBI, and NPCI should rewire the incentive mechanism to ensure that TPAPs other than the dominant two receive a greater share of incentives. This could involve capping the incentives for the leading TPAPs and encouraging banks to diversify their partnerships, thereby supporting smaller TPAP challengers.
Data Portability
The IFF also suggests implementing a “Data Portability” solution, inspired by the Account Aggregator framework. This would allow consumers to port their transaction data from one TPAP to another, encouraging multi-homing and reducing reliance on a single provider. By enabling data portability, smaller TPAPs could leverage transaction data to offer value-added services, enhancing their competitive position and driving greater volume share.
The IFF claims that its recommendations are intended to promote a more competitive and inclusive UPI ecosystem, which they suggest aligns with the broader goals of financial inclusion and systemic resilience. The foundation has expressed its willingness to engage with the Ministry of Finance and the RBI for further discussions and clarifications on the proposed measures.
Disclaimer: This article was generated using AI tools and has undergone editorial review for clarity and coherence.